Rookie Mistakes To Avoid In Market
Thanks to the zero or discount brokerage charging AMCs, it’s very easy nowadays to open an online Demat account and start investing. Many of these service providers also offer free guides to stock markets. And just with the help of such easily available guides, we start to think that we are ready to step into the world of investing or trading. Nothing wrong with that if you are financially sound and are capable to withstand losses for your own choices. To come to think about it, I chose a somewhat similar path in my journey. I was lucky to be financially capable enough to bear the losses which by the way helped me learn some serious lessons. I will try to share a few such rookie mistakes below.
1. Listening to colleagues, friends, and family on what to invest in, where to invest, what stocks to buy.
Taking tips from anyone is a Big No-No! Most of them only talk about their winners, urging us to throw in our hard-earned money on their conviction. Take your time, do your own due diligence. Don’t go blind, this is no teen-patti!
2. Investing in IPOs, based on media or friend’s recommendations only because expected listing gains are lucrative.
If an IPO is big, or many popular analysts recommend it, and brokerage houses go super bullish on it, it is their marketing strategy. You may strike good returns with one or two such investments. But without doing a proper analysis, just going by someone else’s recommendation will surely get you into losses sooner than later. Absolutely not advisable.
3. Trading or Investing based on a friend or a fellow trader’s position without knowing their timeframe or rationale.
Most of the time, it is we who suffer losses for taking other’s opinions. Moreover, we don’t know what is their rationale behind buying the stock. It’s even worse than betting. Once again, definitely do your own diligence.
4. Watching business news channels and acting on the recommendations provided by the “analysts”, “experts” and “fund managers” who appear on TV.
Remember, most of them don’t even beat the benchmark index on an annual basis. Figure out your own research material.
5. Giving too much importance to website or media covered articles and recommendations on stocks to “watch-out for” or the next “multi-baggers”.
Websites and media will try to use many such popular words to lure us to foolish trading. The websites make their money off your trades. So, if you see a recommendation, that marks their distribution phase (most of the time).
6. Coattailing — buying because a big investor/billionaire has bought or selling because that person has sold.
You never know their conviction. Billionaires and HNIs are wealthy enough to sustain themselves in tough market conditions. They can take the losses, not us.
7. Investing in stocks based on easily available screeners.
Screeners are just tools to select stocks based on preliminary criteria. Screening is just 10% to 20% of the work. Beyond which, 90% of the work goes into researching about the company, governance, board, their business model, tailwinds, company’s guidance going forward, what the company is investing money into, what kind of future is there for their product, whether they are going to disrupt or be disrupted, etc. So, jumping into screened stocks without in-depth analysis will be certain death for your equity.
8. Learning a few ratios and investing in stocks.
These ratios are there to just guide your analysis process and not to be taken as sole metrics for investment.
9. Putting money into mutual funds based on the number of stars on websites like moneycontrol/valueresearch or based on economic times recommendations.
Most of these websites often get paid for mutual funds marketing. Mutual funds investment strategy needs to be validated often in various ways. Make informed decisions about investing in mutual funds, it is not very different than investing directly in the stock markets.
10. Following the trades of telegram/twitter/youtube traders.
Stay away as far as possible from such traders as they will present their winners and all the goody-good stuff. All the trade tips providers from social media will not take any responsibility for your trade fails, no matter how accurate they claim to be. I personally have been a victim of free tips, which have majorly contributed to losses I have realized.
11. Handing over your money to someone who is not a SEBI Investment Advisor for investing/trading.
Anyone who claims to double or triple your money is fictitious. Anyone who is not qualified as an investment advisor or is not a qualified portfolio manager cannot be trusted with your hard-earned money. NEVER give control of your portfolio to anyone else, they can ruin or destroy what belongs to you.
12. Averaging down your losers.
Classic repetitive mistake. Beginners think if they get a better average price, they can sell on rise. So, if a stock goes down, you buy more of it. This is great if you know what you’re doing, but you’re a beginner and you don’t.
13. Holding onto losers in the account, hoping they will rebound (they usually don’t).
This is pure classic investor behavior, where one buys some trending stock at its all-time high, then during the tough surviving business conditions, the company tends to fall out. The real picture comes in front of us, but then we chose to ignore the reality and continue to hold the stock in anticipation that it will rise someday. Well unless if it’s a very good company, chances are it won’t and you will feel stuck forever. So be wise before picking any trending stock. Avoid losing sleep over such choices.
14. Buying penny stocks.
Buying penny stocks for beginners is usually like gambling or a lottery. Who are we kidding? Everyone is tempted to do that. I’d suggest you better donate that same amount to someone needy or invest it in learning a new skill. You’ll thank me later!
15. Putting all your money in one stock with conviction.
That’s a very big risk, you don’t want to take the chance of being on the wrong side, do you? Be smart and learn more about diversifying your risks.
16. Buying stocks that are trending.
Back in 2017, a lot of people got caught in Alankit, FCL, Graphite, HEG, etc., towards the end of the bull cycle. They were overbought, overpriced and everyone talked about these. Avoid getting into stocks that everyone around you is unusually discussing day-in and day-out.
17. Investing in stocks that have fallen a lot, just thinking that they are cheap.
Everyone wants to buy a stock at a low price only to sell at a higher price. There is a reason behind the fall of that stock, investors are not favoring the stock anymore. Definitely a sign to find the reasons behind the fall before entering the stock. No one and absolutely no one can predict a bottom for a stock.
18. Not considering index funds to start with investing.
As a beginner, doing SIP in index funds is one of the best things you can do for the long term appreciation of your funds. It’s not sexy. It’s not thrilling. It usually works. At least some variations of it do. Do your research and learn how.
19. Investing with borrowed money.
Definitely, the most foolish thing to do is use leverage to invest in equity. You never know how deep the market dives-in during the bear phase.
To conclude…
I would suggest you keep patience unlike me in my early days. Learn as many things as you can about stock markets and the behavioral traits of an investor. Take your time to pick good companies, as good companies will go nowhere for many many years to come. This will help you to minimize losses and build a less risky portfolio over time. Enjoy the process! Peace out!
Follow my personal journal on, CannySaver.com
